What 2019's 'Wellbeing Budget' might look like

A child swims in the Kaitoke River. The swim and the water quality are not measured in GDP, but swimmable rivers may become Budget measures in future. Photo by Lynn Grieveson

The new Government wants New Zealand to become a world leader in targeting 'wellbeing' with its Budgets, starting in 2019. Thomas Coughlan explains what that might mean.

Now the dust of the 100-day plan is settling, the new Labour-led Government is setting its longer term targets and picking its own tools and language for running the Government. The National-led Government under Bill English championed its Social Investment approach and its Better Public Service targets. This week the Government unveiled its own language and tools: it will target wellbeing rather than just GDP, and will use the Treasury's fast-developing Living Standards framework to do it.

But what does wellbeing mean? And is there a danger the Government will take its eye off its hard budget responsibility rules to run surpluses and cut debt if it focuses too much on 'soft' and unconventional measures?

Prime Minister Jacinda Ardern was enthusiastic about the new approach in her speech in a church on Wednesday about the Government's plans beyond the first 100 days. From 2019, budgets would be delivered using new metrics designed to paint a more accurate picture of New Zealanders’ lives and encourage government to tailor spending to lift the country’s performance across those metrics, she announced.

Budgets would go beyond GDP per capita and debt to GDP ratios to analyse the wider effects on people's wellbeing and the state of the environment in an inter-generational way, she said.

“By Budget 2019 Grant and I want New Zealand to be the first country to assess bids for budget spending against new measures that determine, not just how our spending will impact on GDP, but also on our natural, social, human, and possibly cultural capital too,” she told the crowd.

It comes on the back of the Government’s announcement on Tuesday that the Public Finance Act would be amended to report on measurements of child poverty and committing future governments to developing strategies to reduce child poverty.

Ardern also gave detail on the types to measurements that would be used to supplement GDP, noting that Robertson has asked Treasury to accelerate its work on the Living Standards Framework, a basket of alternative economic measurements that Treasury began developing in 2011.

This is not out of the blue

While the Government may talk up the changes as world leading, they follow decades of academic research into alternative measurements of economic progress as well as some significant steps taken by governments and central banks around the world.

In 2008, the French Government under the leadership of President Nicholas Sarkozy commissioned economists Joseph Stiglitz, Amartya Sen and Jean-Paul Fitoussi to investigate how the wealth and social progress of a nation could be measured without resorting to narrow metrics like GDP.

Following that, in 2010, Prime Minister David Cameron directed the Office of National Statistics in the United Kingdom to collect information on the relative happiness of the country.

“It’s time we admitted that there’s more to life than money and it’s time we focused not just on GDP but on GWB - general wellbeing”, Cameron said, announcing the policy.

The OECD and the World Bank have also been calling for more wide-ranging reporting metrics and have assisted this by themselves collecting broader economic data. In 2011, following recommendations from the Stiglitz-Sen-Fitoussi commission and a decade of its own work, the OECD began publishing a Better Life Index and How’s Life? report, which reported on 11 key indicators of wellbeing.

At an international level, some of these measurements have even been implemented, for example in the United Nations’ Sustainable Development Goals. Treasury’s Deputy Chief Economic Advisor, Tony Burton, said that broader economic measurements are actually quite widespread. They just tend to go under different names at different organisations.

In 2011, Treasury began developing its own Living Standards Framework, which measured four capitals: Natural, Social, Human and Financial/Physical. These were intended to give a better picture of the relative health of the nation. Although the Living Standards Framework was largely ignored by the previous government, it had some influence over the Better Public Service Targets set in 2012 and 2017.

Putting GWB into the EFUs

So what do the creators of these budgets say they will look like?

Burton and Tim Ng, Treasury’s Chief Economic Advisor, developed the Living Standards Framework and sketched out to Newsroom how the new focus would affect the budget in 2019

“A good example is the EFU [Economic and Fiscal Update}, the Budget or half-yearly EFU, we offer a background piece of information in that relatively narrow document around the economic conditions and that is Treasury’s assessment”, Burton said. “What governments do is provide priorities and strategies based on that assessment based upon that information. You might think of the living standards framework as replacing that with this broader set of indicators of outcomes, but also the same sort of status," he said.

“We’re trying to develop a system like that but obviously expand it to take in wellbeing."

Including the Living Standards Framework in assessments like the EFUs would direct ministries to target their programs in ways that would improve the countries' performance as measured by the Living Standards Framework.

“When you choose a target one has a causal model in mind: why would you target that particular thing? Because you think it will lead to this, which will lead to that, which will improve wellbeing”.

'Show me the living standard'

On a more day-to-day level, the implementation of the framework will change how the other arms of government interact with Treasury. When compiling a bid for funding, the agency will have to make an analysis based on the Living Standards Framework and the sustainability of those four capitals, Natural, Social, Human and Financial/Physical.

“Agencies [will] develop a bid for something some initiative, the first mailbox in the treasury is the vote team and that is where the interaction in a mature system would happen around the contribution of that agencies proposed initiative to wellbeing”, said Burton.

Treasury already has some experience with this sort of analysis. In 2015, it unveiled CBAx, a Cost Benefit Analysis tool that has been used to compile analysis of bids for government funding.

“That template does include fields where you say look, if you think your bid has non-monetary benefits associated, say what they are, are and to the extent that you can put a monetary valuation against them”, said Ng.

Ng said the new measurements are in some ways “an evolution” of this system.

'Taking off the training wheels and adding an electric motor'

Treasury still has plenty of work to do before the first wellbeing budget in 2019. Robertson, on Wednesday said that he has asked Treasury to “accelerate” its work on the Living Standards Framework.

Ng said the team devoted to its development was “small compared to the size of the task”. Just three people are working on the conceptual basis of the framework and indicators of wellbeing, although the entire organisation is involved in developing policy advice based on the framework.

Talking to Ng and Burton, one gets a sense for the immensity of the task — trying to turn the philosophical into the practical. Equally fascinating is the extent to which Treasury has allowed itself to think laterally and experimentally in developing the measurements.

“There are actually a number of deep philosophical roots to this which actually converge. At a practical level when you’re at Treasury or a Government department trying to make sense of this in terms of what you would put in documents that actually for practical purposes converge together, part of our learning curve in a way has been realising that,” said Burton.

“It would not be accurate to conceive of what the Treasury is doing as a kind of linear process where there is a settled way of doing this, we’re kind of discovering it as we go along and we’re also testing what works best in the different wellbeing domains”.

Even so, Ng confirms that from the initial, philosophical basis, Treasury is now working on the “practical and pragmatic about what this means for the purpose of improving policy advice."

“GDP will still be important"

Arthrur Grimes, Professor and Chair of Wellbeing in Public Policy at Victoria University, said the shift was “not the first time by any means” wellbeing had entered public policy, but followed “what a number of places have been doing internationally”.

He was excited about the scope for the wellbeing budgets — even beyond what Ardern had announced. It could look at fulfilling human capabilities, following the Amatya Sen report, or adopt a more summary measure like asking ‘how do people feel about their lives overall’. This could work alongside Treasury’s sustainability measurements against the four capitals

Wellbeing budgets, he said, would hardly make government easier.

"This doesn’t do away with trade-offs, making policy is just as hard under this as it ever has been you spend money on one area and you can’t spend it on another, you can spend your resources to improve longevity but you might have to take them away from kindergartens… so at the central level they’ll have to make the same decisions they have had to make before," Grimes told Newsroom.

Grimes also said that the Government’s decision shouldn’t be seen as an attempt to downgrade GDP.

“GDP will still be important. The infrastructure is there and it is internationally comparable,” he said.

Even beyond its usefulness as a measurement of economic growth, GDP was useful from the perspective of wellbeing outcomes.

'Greener grass matters too'

Grimes said wellbeing measures were not just about totals or aggregates, but also inequalites.

"There is one angle of inequality that people often forget and that is that people think about themselves not just in relation to people in their town, but they also think about themselves relative to people overseas," he said.

"In the end, if we don’t keep up with GDP or preferably GNI, then we will feel pretty bad”, he said.

“If the Australians get richer and we don’t, we will feel pretty bad. If the rest of the world gets richer we have to get richer as well, for wellbeing purposes."

The political reaction has been typically divisive, with National Finance Spokesman Steven Joyce questioning why Labour would abolish BPS targets, when they could have been part of the implementation of the Living Standards Framework.

Ng doesn’t see these as necessarily in conflict.

“The better public service targets are an example of operationalising [the Living Standards Framework].”